Getting a 2022 income tax refund can be both exciting and stressful, as you’ll have to decide what to do with it. You have so many options. Should you save it? Squander it? Your refund could make you feel rich and inspire you to splurge on unnecessary things. Instead, consider one of these nine savvy steps to turbocharge your financial security.
#1) Start an emergency fund. Even if you’re fully employed now, there’s no guarantee that your hours won’t be cut, your salary reduced, or your job eliminated down the road. That means it’s more important than ever to have money set aside for emergencies. That way, you won’t have to run up credit card debts or raid your retirement savings to pay the bills until you get back on your feet.
#2) Pay off high-interest debt. In an effort to curb inflation, the Federal Reserve is expected to hike short-term interest rates several times this year, and that means credit card rates will rise, too. Pay off your unpaid balances. If you’re able to pay off the entire balance, you’ll eliminate a monthly expense, which can give you some breathing room.
#3) Save for retirement. If you have a Roth or traditional IRA, consider putting some of your refund money in the account now so you’ll have more money when you retire. If you don’t already have an IRA, think about getting one. The maximum amount you can contribute to your IRAs in 2023 is $6,500 — $7,500 if you’re 50 or older — so you can stash your refund there if you don’t need it for anything else.
#4) Invest in a 529 College Savings Plan. Contributions grow tax-free, and withdrawals aren’t taxed if you use them for qualified expenses, such as college tuition and room and board. You can invest all or a portion of your tax refund — 529 plans typically have very low minimums. Plus, your state may give you a tax deduction or credit if you invest in your own state’s plan.
#5) Protect yourself from unexpected health care costs. If you have a high-deductible health insurance plan (a deductible of at least $1,400 for single coverage or $2,800 for family coverage), you can contribute to a health savings account. An HSA gives you a triple tax break — your contributions are tax-deductible (or pre-tax if through your employer).
#6) Save your tax refund. Every household should have an emergency savings account with a balance equivalent to at least three to six months of living expenses. That way you can cover any unexpected expenses that come your way, such as medical bills or a job loss. If your savings account has room to grow, deposit all or at least a portion of your refund into it.
#7) Donate Your tax refund. Put your refund to good use by donating all or part of it to your favorite nonprofit organization. Not only will you be helping others in your community, but you will also gain a sense of pride that will last much longer than if you spent your refund on a material item.
#8) Put it towards a home improvement project. Your home is one of your largest assets. Therefore, making necessary home improvements are often a must if you want your home to maintain or increase its value. Use your tax return to help cover necessary home improvement expenses such as a new roof, AC unit or windows. You could even use it to improve its curb appeal by applying a new coat of paint, sprucing up landscaping or mending that fence.
#9) Support local businesses. One of the most impactful way you can help is by shopping local. For example; You can support local restaurants throughout the year by putting your tax refund in a savings account and using it to order in or eat out. You’re helping a local business thrive without impacting your budget. Watch this video for more ways to support local businesses.
Another great way to invest your tax refund check is with an NIHFCU Certificate of Deposit (CD). Great rates are in bloom from 3-30 months. Lock in a great rate today and watch your savings grow!
Resources:
Kiplinger
